Summary
The Supreme Court classified the assessee’s relays, admittedly used solely in railway signalling, under Heading 8608 rather than 8536.90. The authorities had overlooked the sole or principal use test and inconsistently invoked the specific-description rule after excluding one competing heading. The demand notices were also unsustainable on limitation on these facts, where the revised classification had been expressly approved and no suppression or fraud was alleged.
Issues
- Which tariff heading covered relays used solely for railway signalling.
- Whether the classification demand notices were within limitation.
Provisions considered
- First Schedule, Heading 8608; Section XVII Note 3; General Rules 1 and 3, Central Excise Tariff Act, 1985The admitted sole railway use and relevant notes governed classification; Rule 3 did not justify the authorities’ inconsistent approach. (¶¶ 19-20, 26-39)
Held
- Classification starts with the headings and relevant notes. Rule 3 presupposes prima facie competing headings; it was inconsistent to invoke it after treating Heading 8608 as wholly unavailable. (¶ 26-31)
- The admitted sole use of the relays in railway signalling required application of Note 3’s user test. Overlooking that test in applying the electrical-equipment exclusion was erroneous on these facts. (¶ 32-39)
- The extended limitation period was unavailable without fraud, suppression or equivalent conduct. The applicable normal period for these notices was six months; some demands exceeded it. More fundamentally, the notices sought belatedly to undo the approved 1993 classification in a classification-wide dispute rather than invoice-specific disputes. (¶ 40-46)
Result
Appeal allowed; adjudication, appellate and Tribunal orders and the show-cause-cum-demand notices set aside. No costs.